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The Tariff Tantrum subsided. Now what?

Stocks opened the new week the way it ended last week, with a big rally. The Dow did dip almost 100-point off the highs in the final few minutes of trading, but it still gained a solid 337-points on the day. Unlike on Friday, small caps lagged yesterday, but still performed well. Bonds were down slightly as the 10-year Treasury yield rose back above 2.88%.

[LEFT] Investors are still trying to digest the tariff talk, which continues to be the issue de jour for the market. But in reality, the key remains pricing in the upcoming interest rate hikes and the tax cuts. The first reaction to those cuts may have overshot on the upside a little too soon, but we'll know more when 2018 quarterly earnings start to come in.

Last week's Tariff Tantrum seems to have calmed after what we saw both Friday and Monday, but it has become almost routine since the end of January, to see 300 - 400 point moves in the Dow and 500 - 600 point intraday ranges almost daily. So volatility is alive and well, regardless of the direction, and that does tend to favor the bears. The bulls would prefer a quiet market, although I'm sure they weren't complaining yesterday. The VIX is still close to 20.0 and we know that is a major difference from what we saw in 2017 and into January of this year.

Technically, the action is positive but there are still some obstacles that could be in the way of this most recent rebound, as you'll see in the charts below.

We get the January Jobs Report on Friday morning and estimates are looking for a gain of 210,000 jobs and an unemployment rate of 4.0%. They would be impressive numbers if hit, but investors and the Fed seem more concerned with the wage numbers at this point.

I drew in the 50-day Simple Moving Average (SMA) in orange on the S&P 500 / C-fund since it seems to be more of a factor at this time. I normally use the 50-day exponential moving average (EMA) but it's really what ever the masses are viewing since support and resistance off these lines can be self-fulfilling prophesies. Anyway, this recent rally has run up to the 50-day SMA again after failing the first time. As I have posted before (and our TSP Talk Plus Subscribers can see above) this has been a major resistance area for the S&P after a correction over the years.

The small caps / S-fund is at this same crucial pivot point. It backed off late yesterday and was only able to close meaningfully above the 50-day SMA once in the last 4 weeks.

The Dow Transportation Index -- same thing. The 50-day SMA failed last week and now it is back below both the 50-day SMA and EMA. The positive action over the last two days looks good since it also closed near the highs of the day on both days, but it really hasn't moved up all that much in comparison, so this market leader is lagging.

The EAFE Index / I-fund also failed at the 50-day SMA so let's draw it in there and see how long it remains a key level of resistance.

The index that has been outperforming is the Nasdaq 100, or QQQ. We saw a double top pullback last week, which is typical. Then we saw the 50-day EMA hold as support, while all of the other major indices are still struggling below the 50-day SMA. This could be a tell as this chart is creating a very bullish looking cup and handle formation.

The AGG (bonds / F-fund) broke above its trading channel last week but is stuck in a bear flag and not making much progress. It's due for a rebound but be careful here. That's an ugly looking chart.

Read more in today's TSP Talk Plus Report. We post more charts, indicators and analysis, plus discuss the allocations of the TSP and ETF Systems. For more information on how to gain access and a list of the benefits of being a subscriber, please go to: www.tsptalk.com/plus.php

The legal stuff: This information is for educational purposes only! This is not advice or a recommendation. We do not give investment advice. Do not act on this data. Do not buy, sell or trade the funds mentioned herein based on this information. We may trade these funds differently than discussed above. We use additional methods and strategies to determine fund positions.